Trade Liberalization and Job Creation in Nigeria

Trade Liberalization and Job Creation in Nigeria

Chapter One of Trade Liberalization and Job Creation in Nigeria

INTRODUCTION

Background to the Study

Trade Iiberalisation is generally believed to be a crucial component of the macroeconomic policy necessary for growth and socio-economic well-being. This is because a free trade situation results in overall global welfare gains as each trading nation will maximize output based on the doctrine of relative comparative advantage and/or factor endowments. For a labour surplus economy, it is expected that trade openness would foster the export of labour intensive products thereby generating gains in labour employment and poverty alleviation. This perhaps will explain why Bouet (2006) noted that the world community that made poverty alleviation as the main goal of MDGs called for current global trade negotiations, conducted by the World Trade Organization (WTO), the Doha Development Agenda. The expectation is that trade liberalization will have positive effect on development and poverty reduction especially among less developed countries characterized by surplus labor as factor endowments.

Nigeria’s trade policy since the 1960s reflects a trend which has been known to characterize uncertain and unpredictable trade regimes the world over by assessment. There has been a lot of policy swings on trade policy since the 1960s from high protectionism in the first few decades since Nigeria gained her independence to its current more liberal stance (Adenikinju, 1994). Tariffs have at various times been used to raise fiscal revenue, limit imports to safeguard foreign exchange or even protect the domestic industries from competition. In addition, various forms of non-tariff barriers such as quotas, prohibitions and licensing schemes have on various occasions been extensively used to limit imports of particular items. The overall pattern portrays the long-held belief that trade policy can be used to influence the trade regime in directions that can promote economic growth. Efforts were made to use trade policy to promote exports and enhance the linkages in the domestic economy, to increase and stabilize export revenue, and scale down the country’s reliance on the oil sector. Trade policies were accordingly directed at discouraging dumping; supporting import substitution; stemming adverse movements in the balance of payments; conserving foreign exchange; and generating government revenue.

However, it has been observed that open trade policy, backed by exchange rate reforms, which led to improvement in exports of many countries, especially the Asian Tigers, have had adverse consequences on employment and poverty in most LDCs. Although it led to reduction in sectoral incentives bias which favoured manufacturing sector visa-vis labour intensive small scale agriculture, the social consequences on accentuating poverty was very pronounced. Many policy analysts argue that this adverse development is not due to trade liberalisations, but traceable to widespread adoption of import substitution strategies which compromised the gains from trade. Yet trade liberalization is known to hold the key to rapid development and it would appear that it holds the key to overcoming the greatest challenge the region faces in the contemporary global economy.

Between the periods of 1981 to 1999 unemployment rate in Nigeria averaged 4.11%. The rate increased at more than geometric rate in year 2000. The unemployment rate in Nigeria which was 13.1 % in year 2000 went up to 14.8% 2003. The rate fell slightly to 11.9% in 2005 and since then it has been on the increase. In 2006 it was 12.3%; it rose to 14.9% in 2008. Since 2006, Nigeria unemployment rate averaged 14.6 Percent reaching an all time high of 23.9 percent in December of 2011 (National Bureau of Statistics, 2012). This is a matter of considerable concern to all Nigerians especially when we compare it with that of United State of America which stood at 2.5% for the same period, (World Development Indicators, 2012).

Nigeria attained independence in 1960 and has witnessed two major political dispensations; the military and the civilian regimes. During these two regimes Nigeria applied varying degree of trade liberalization. Between 1980 to 1982, Shagari government after initially soothing trade restrictions tightened the noose in 1982. The period between 1986 to 1987 was characterized with trade liberalization regime. The government specifically abolished import and export licensing, reduced items on import prohibition list from 74 to 16 and took off the 11 items on the export prohibition list (Rodrik, 1992; Moser, et al 1997). In 1987, Nigeria abolished 30% surcharge on imports and reduced the 100% advance payment in respect of import duty to 25%. Between 1986 and 1987 trade tariffs were significantly reduced from an average of 33% to 23% and tariff dispersions were drastically reduced or compressed. By 1989 through 1990, it was clear that trade liberalization had been drastically compressed as tariffs were significantly raised and export prohibition list appeared (Rodrik, 1992, Moser, et al 1997). This remained until 1999. The civilian regime was restored in 1999 with expectations that it would usher in trade liberalization in view of government’s declaration of commitment to major economic reforms. Although trade liberalization continued even at the advent of the civilian regime but it was at a level comparable to that recorded between 1986 and 1987.

This study, therefore, investigates the relationship between poverty, employment dynamics and trade liberalisation in Nigeria. Using time series data for the period 1986-2010 and a mixed-method of investigation comprising both descriptive and econometrics analysis, the study, specifically examines whether the process of trade liberalisation has caused poverty or contributed to its alleviation. Also, it sheds light on the effect of trade liberalisation policy on poverty via employment channels.

Statement of the Problem

In spite of the nation’s abundant of surplus labour, rapidly growing labour force and increasing employment, the share of employed workers in total labour force has been declining since 1980, coupled with this, in the last two decade, the trend has been below 70%, which is an indication of high unemployment as more than 30% of its active population are unemployed.

This pattern is not new as Nigeria is profoundly reliant on imports for the vast majority of its raw materials inputs (CBN, 2007) and the job creation impact of these imports may be sure if a critical part of imports fills in as contributions for labour intensive organizations. In any case, this pattern has offered ascend to banters in developing nations where concerns have been communicated over the loss of jobs because of import challenge (Ghose 2003) and deindustrialisation as consequence of expanded imports.

Nonetheless, government has attempted to switch this pattern through the execution of strategies to differentiate the nation’s export base away from oil in order to advance a more grounded trade execution. Such export policy incorporates export promotion in which incentives were given for the advancement of non-oil exports especially agriculture and labour intensive produces. As explained by Arbache (2010) and Rama (2011), globalization expands work level in nations grasping the techniques. Along these lines, there had been a continuous contention among government and the general public, while the former opined that her export promotion arrangements have expanded the degree of job creation, large number of the individuals accept that joblessness is on the rise; it is against this setting that this study will determine if the progression of imports and exports have brought any noteworthy impacts on job creation in Nigeria.

Objectives of the Study

The main objective of this study is to empirically examine trade liberalization and job creation in Nigeria. Specifically, the study also seeks:

1. To examine the relationship between trade liberalization and job creation in Nigeria.
2. To examine the impacts of trade liberalization on Nigerian economy.
3. To understand the policy issues on trade liberalization in Nigeria

Research Questions

This study aims at answering the following research questions:

1. What is the relationship between trade liberalization and job creation in Nigeria?
2. What are the impacts of trade liberalization on Nigerian economy?
3. What are the policy issues on trade liberalization in Nigeria?

Research Hypothesis

The following hypothesis will be tested in the course of this study:

H0:   Trade liberalisation has no significant relationship between job creation in Nigeria.

H1:    Trade liberalisation has significant impact on Nigerian economy

Significance of the Study

The findings of this study will provide an insight as to whether trade liberalisation has any significant impact on Nigeria’s employment growth. Hence, policy makers will be able to formulate an articulate and comprehensive policy with respect to trade liberalisation management in Nigeria.  This research will also provide an objective view to the trade liberalization and job creation in Nigeria. The findings of this research will also serve as a useful reference material for further research on the impact of trade liberalization and job creation in Nigeria.

Scope of the Study

The economy is a large component with lot of diverse and sometimes complex parts; this research work will only look at a particular part of the economy (Trade). This work cannot cover all the facets that make up the Trade sector, but will look at trade liberalisation has been used by the government for the stabilization, and attaining economic development. The data for this study would be obtained mainly from secondary sources; particularly from Central Bank of Nigeria (CBN) publications such as the CBN Statistical Bulletin, CBN Annual Reports and Statements of Accounts, and National Bureau of Statistics publications.

Limitations of the Study

Finance is one of the elements that assist a good research. Financial constraint created difficulties in the process of this research work; however, it did not hinder the research. The main limitation of this study is time constraint. The time allotted for the completion of this research is not adequate based on recent and contemporary happening with respect to the impact of trade liberalisation on job creation in Nigeria.

Definition of Terms

The following words are operationally defined as they would be used in this research study.

Trade liberalisation: The removal or reduction of restrictions or barriers on the free exchange of goods between nations. This includes the removal or reduction of both tariff (duties and surcharges) and non-tariff obstacles (like licensing rules, quotas and other requirements).

Foreign Trade: This is a trade between two or more countries. It is also referred to as international trade or external trade. It is a trade outside the national boundaries of countries. Foreign trade could be bilateral trade, which is trade between two countries or multilateral trade, which is trade between more than two countries.

Job creation: This is a state of having a legitimate paid work. This is the opposite of unemployment.